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INCOME TAXES | 12 Months Ended
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Dec. 26, 2021
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES Income (loss) before income taxes by jurisdiction is as follows:
| Year Ended
| December 26, 2021 |  | December 27, 2020 |  | December 29, 2019
| (In thousands)
U.S. | $ | (141,940) |  |  | $ | (27,095) |  |  | $ | 342,110 |
Foreign | 234,330 |  |  | 188,920 |  |  | 275,435 |
Total | $ | 92,390 |  |  | $ | 161,825 |  |  | $ | 617,545 |
The components of income tax expense (benefit) are set forth below:
| Year Ended
| December 26, 2021 |  | December 27, 2020 |  | December 29, 2019
| (In thousands)
Current: |  |  |  |  |
Federal | $ | 22,591 |  |  | $ | (8,800) |  |  | $ | 27,585 |
Foreign | 115,772 |  |  | 28,985 |  |  | 78,099 |
State and other | 9,150 |  |  | 9,234 |  |  | 12,847 |
Total current | 147,513 |  |  | 29,419 |  |  | 118,531 |
Deferred: |  |  |  |  |
Federal | (52,147) |  |  | 13,864 |  |  | 51,387 |
Foreign | (16,225) |  |  | 19,622 |  |  | (18,596) |
State and other | (18,019) |  |  | 3,850 |  |  | 9,687 |
Total deferred | (86,391) |  |  | 37,336 |  |  | 42,478 |
| $ | 61,122 |  |  | $ | 66,755 |  |  | $ | 161,009 |
The effective tax rate for 2021 was 66.2% compared to 41.2% for 2020 and 26.1% for 2019. The following table reconciles the statutory U.S. federal income tax rate to the Company’s effective income tax rate:
| Year Ended
| December 26, 2021 |  | December 27, 2020 |  | December 29, 2019
Federal income tax rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
State tax rate, net | (4.5) |  |  | 6.7 |  |  | 3.0 |
Global intangible low-taxed income | — |  |  | (7.3) |  |  | 1.5 |
DOJ agreement | — |  |  | 14.3 |  |  | — |
Intercompany financing | (14.1) |  |  | (9.5) |  |  | (1.6) |
Permanent items | 1.7 |  |  | 1.2 |  |  | (1.6) |
Difference in U.S. statutory tax rate and foreign country effective tax rate | 22.3 |  |  | 5.4 |  |  | 2.1 |
Rate change | 26.6 |  |  | 5.2 |  |  | (0.1) |
Foreign currency translation | 10.6 |  |  | 3.0 |  |  | (0.6) |
Tax credits | (4.1) |  |  | (1.4) |  |  | (0.7) |
Change in reserve for unrecognized tax benefits | 7.3 |  |  | 0.3 |  |  | 2.7 |
Change in valuation allowance | (0.2) |  |  | 1.2 |  |  | 0.1 |
Other | (0.4) |  |  | 1.1 |  |  | 0.3 |
Total | 66.2 | % |  | 41.2 | % |  | 26.1 | %
Included in the change in reserve for unrecognized tax benefits is an increase of 7.0% in the effective tax rate related to interest deductions in the U.K. for tax years 2017 through 2021. The amount was recorded during the year ended December 26, 2021. Included in the change in reserve for unrecognized tax benefits is an increase of 2.6% in the effective tax rate related to a specific transaction undertaken by a Mexico subsidiary of the Company during tax year 2011. The amount was recorded and paid during the year ended December 29, 2019. Significant components of the Company’s deferred tax liabilities and assets are as follows:
| December 26, 2021 |  | December 27, 2020
| (In thousands)
Deferred tax liabilities: |  |  |
PP&E and identified intangible assets | $ | 518,641 |  |  | $ | 376,917 |
Inventories | 26,590 |  |  | 116,226 |
Insurance claims and losses | 33,416 |  |  | 32,679 |
Incentive compensation | 11,444 |  |  | 16,204 |
Operating lease assets | 88,028 |  |  | 65,906 |
Other | 11,373 |  |  | 26,968 |
Total deferred tax liabilities | 689,492 |  |  | 634,900 |
Deferred tax assets: |  |  |
U.S. net operating losses | 2,693 |  |  | 3,034 |
Foreign net operating losses | 53,227 |  |  | 56,213 |
Credit carry forwards | 19,026 |  |  | 15,223 |
Allowance for credit losses | 6,996 |  |  | 4,005 |
Accrued liabilities | 103,482 |  |  | 94,769 |
Workers’ compensation | 37,681 |  |  | 36,759 |
Pension and other postretirement benefits | 28,083 |  |  | 35,899 |
Operating lease liabilities | 88,028 |  |  | 65,906 |
Other | 10,666 |  |  | 21,640 |
Total deferred tax assets | 349,882 |  |  | 333,448 |
Valuation allowance | (24,261) |  |  | (32,908) |
Net deferred tax assets | 325,621 |  |  | 300,540 |
Net deferred tax liabilities | $ | 363,871 |  |  | $ | 334,360 |
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carry back and carry forward periods), projected future taxable income and tax-planning strategies in making this assessment. As of December 26, 2021, the Company believes it has sufficient positive evidence to conclude that realization of its federal, state and foreign net deferred tax assets are more likely than not to be realized. As of December 26, 2021, the Company’s valuation allowance is $24.3 million, of which $7.0 million relates to Moy Park operations, $4.5 million relates to PPL operations, $0.1 million relates to Mexico operations, $11.8 million relates to U.S. foreign tax credits and $0.9 million relates to state net operating losses. As of December 26, 2021, the Company had state net operating loss carry forwards of approximately $76.8 million that begin to expire in 2022. The Company also had Mexico net operating loss carry forwards as of December 26, 2021 of approximately $1.7 million that begin to expire in 2028. The Company also had U.K. net operating loss carry forwards as of December 26, 2021 of approximately $250.1 million that may be carried forward indefinitely. As of December 26, 2021, the Company had approximately $6.1 million of state tax credit carry forwards that begin to expire in 2022. For the year ended December 26, 2021 and year ended December 27, 2020, there is a tax effect of $(8.2) million and $6.9 million, respectively, reflected in other comprehensive income. For the years ended December 26, 2021 and December 27, 2020, there are immaterial tax effects reflected in income tax expense due to excess tax benefits and shortfalls related to stock-based compensation. See “Note 1. Business and Summary of Significant Accounting Policies” for additional information. A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
| December 26, 2021 |  | December 27, 2020
| (In thousands)
Unrecognized tax benefits, beginning of year | $ | 13,271 |  |  | $ | 12,776 |
Increase as a result of tax positions taken during the current year | 6,472 |  |  | — |
Increase as a result of tax positions taken during prior years | 1,156 |  |  | 731 |
Decrease for lapse in statute of limitations | (657) |  |  | (236) |
Unrecognized tax benefits, end of year | $ | 20,242 |  |  | $ | 13,271 |
Included in unrecognized tax benefits of $20.2 million as of December 26, 2021, was $7.4 million of tax benefits that, if reco gnized, would reduce the Company’s effective tax rate. It is not practicable at this time to estimate the amount of unrecognized tax benefits that will change in the next twelve months. The Company recognizes interest and penalties related to unrecognized tax benefits in its provision for income taxes. As of December 26, 2021, the Company had recorded a liability of $3.2 million for interest and penalties. During 2021, accrued interest and penalty amounts related to uncertain tax positions increased by $0.4 million. The Company operates in the U.S. (including multiple state jurisdictions), Puerto Rico and several foreign locations including Mexico, the U.K. and the Republic of Ireland. With few exceptions, the Company is no longer subject to examinations by taxing authorities for years prior to 2017 in U.S. federal, state and local jurisdictions, for years prior to 2011 in Mexico, and for years prior to 2017 in the U.K. As of July 27, 2020, JBS owns in excess of 80% of the outstanding common stock of Pilgrim’s. JBS USA Holdings has a federal tax election to file a consolidated tax return with subsidiaries in which it holds an ownership of at least 80%. The Company has a tax sharing agreement with JBS USA Holdings effective for tax years beginning 2010. The net tax payable for year 2021 of $2.0 million was accrued in 2021 as a capital distribution and an account payable to a related party in our Consolidated Balance Sheet. The tax sharing agreement was updated during 2020 to consider the impact of Pilgrim’s joining the JBS consolidated tax return.

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